Insurance market in £323m setback

Monday 21 March 2005 08:07 BST

THE Lloyd's insurance market is weighing up legal action against two of its largest brokers, Aon and Benfield, after a £323m blow to profits when a policy it bought to protect investors' money failed to pay out.

Lloyd's revealed last week that it had substantially lost a dispute over an insurance policy it had taken with six large reinsurance groups led by Swiss Re and including firms such as St Paul and Hannover Re.

The policy had been designed to protect Lloyd's central fund - which covers claims on the market that cannot be met by its syndicate underwriters without calling for extra cash from investors - against large and frequent claims over a five-year period.

Lloyd's thought the policy would allow it to make claims of £350 million in any one year. But arbitrators decided the insurance giants, which had written the cover, were entitled to refuse to pay most of Lloyd's claims.

As a result, Lloyd's profits for 2004, which will be announced early next month, will be reduced by more than £300 million to about £600m. The market's £1.3bn central fund will be cut by £226m.